The EPA vs. State Economies

November 29, 2012

The renewable fuel standard (RFS) is increasing the biofuel-blending requirements. This change can give rise to numerous damaging spillovers throughout the economy, says Marlo Lewis, a senior fellow in environmental policy at the Competitive Enterprise Institute.

This program requires refiners to blend increasing quantities of biofuel, which are mostly corn ethanol, into the nation's motor-fuel supply.

The 2012 target is to blend 13.2 billion gallons of biofuel into gasoline.

In 2013, the target is 13.8 billion gallons.

This year, 40 percent of the nation's corn will be used for ethanol manufacturing.

This alone will increase corn prices, harming state poultry, beef, pork and dairy farmers who use corn as animal feed.

Moreover, such an initiative does not follow sound economic reasoning.

In a competitive market, very few would buy ethanol as motor fuel because the substance has one-third less energy than gasoline and does not make up the difference in price.

At the current rate, on average, it would cost the consumer $500 a year to switch to E85, a fuel that is 85 percent ethanol.

Arkansas' experience demonstrates the damaging effects the RFS can have on a state economy. According to Arkansas governor Mike Beebe:

Virtually all of Arkansas is suffering from severe drought conditions, and accelerating corn prices impose a severe economic impact on the state's livestock producers.

While the drought may have triggered the price spike in corn, the fuel standard aggravates the problem -- the policy has boosted corn prices 193 percent since 2005.

Agriculture accounts for around 25 percent of the state's economic activity.

Indeed, the RFS will disproportionally hurt regions with extensive farming industries, while following inefficient market principles.